Business frauds and scams, just like the real world, evolve to incorporate traits of the "better" ones. A new "successful" scam could be a hybrid of two or more identified scams. Knowing the basics of each type is, therefore, important to identify business scams and schemes. We already discussed Ponzi and pyramid scams, both of which may utilize the "boiler room" scheme.

 

A boiler room ordinarily refers to a room, like in a building or a ship, that houses one or more steam boilers. There's naturally a lot of heat and pressure in a boiler room, something which is also present in boiler room-type scams and schemes.

  

An ordinary illustration, something which is not necessarily illegal, is the modus used by some salespeople, usually strategically stationed in lobbies of malls. Actual complaints reaching the Department of Trade and Industry (DTI) reveal that the complainants also cite the overbearing presence salespeople, often swarming around the potential "client". This high-pressure tactic affects the consumers' decision-making. These salespeople may offer promotional coupons for a chance to win products for “free”, with the customers subsequenty discovering that they actually paid for these “freebies.” There are also "raffles", allegedly with no obligation to buy anything. Almost always, the victim wins the grand prize, and the salespeople would maximize the frenzy that follows by asking the "winner" to buy any product to be able to claim the grand prize. (Source: SunStar Cebu)

More sophisticated boiler room scams involve billions of dollars. "The North American Securities Administrators Association estimates that unwary investors lose billions a year to investment fraud promoted over the telephone. Self-employment scams and high-tech schemes are among investments most recently heavily promoted by phone. This tip sheet is designed to provide investors with self-defense tactics to fight off the promotion of investment scams by "boiler rooms," the high-pressure phone sales operations from which sales people call to promote abusive and fraudulent deals."

 

The US Securities and Exchange Commission, on the other hand, has taken action against numerous firms and brokers who use high-pressure tactics to sell securities. A recent case describes a "boiler room" in this way:

The firm was operating a classic boiler room. The brokers sat "cheek by jowl" in a room the size of a basketball court. All of their desks were lined up side by side in rows. The firm held mandatory sales meetings every morning at 8:30 a.m. at which time sales techniques were demonstrated and scripts for the firm's "house stock" . . . were distributed. Brokers were expected to follow the scripts and only give customers the information they contained. Brokers were discouraged from doing any outside research, and were told to rely on the firm's research and representations. . . .

After the morning sales meeting, brokers were expected to spend the entire day (except for a lunch break) on the telephone. The firm expected a high volume of sales, and if brokers did not stay on the phone, they were fired. . . .

One broker conceded that he falsely identified another salesman . . . as the firm's research analyst, and gave a fictitious description of the purported analyst as "fat, bald, and badly dressed." He stated that the reason for the firm's policy of discouraging customer sales was its desire to avoid negative price pressure on house stocks, a circumstance that he did not disclose to customers.

-- From an opinion in a recent SEC enforcement case

High-pressure sales tactics.

Outrageous promises of extraordinarily high profit at little or no risk.

A demand for an immediate decision.

A reluctance to provide information about the sales firm or the investment.

Mumbo-jumbo about "inside information" or "secret" technology.

Delayed delivery of the product and/or profits.

Unusual arrangements for collecting funds from investors. No matter what unusual collection method is used, the purpose is the same: Don`t give customers enough time to back out of sending money.